Here are some mighty strong words: “The subprime lending debacle has caused the greatest loss of wealth to people of color in modern U.S. history.” That is the conclusion of the lead author of a new report by United for a Fair Economy, Amaad Rivera, as quoted in an excellent article in the Christian Science Monitor.

The report, says the paper, also concludes that “Black/African-American borrowers will lose between $71 billion and $92 billion in the current foreclosure crisis…” Add another loss for Latino borrowers of another $75 billion to $98 billion, says the paper.

Why?

The paper reports that a little more than half of African-Americans and 4 in 10 Hispanics back in 2006 got subprime mortgage loans. And, as we all know, defaults on subprime loans were the spark that ignited this entire economic mess that now is taking down the banking system along with the real estate one.

When viewed in this light, it is apparent who is getting hit the hardest–as a group–by this awful downturn.

Says the paper, “There’s broad support on Capitol Hill for shoring up government-sponsored home-mortgage giants Fannie Mae and Freddie Mac: They’re too big to fail, many say. But there’s much less consensus over what to do about people who are losing their homes,especially in poor, inner-city neighborhoods–or even over how to understand their plight.”

I interviewed earlier today an African-American woman who is an example of this very issue: She holds down one full time and two part time jobs, works seven days a week, is a widow, is supporting a live-in 17 year old niece, and, this week, will probably lose the home she long lived in with her husband in a “mixed” neighborhood, as she puts it, of Southern California.

To listen to her story, is to listen to all the stories out there of those suffering the worst housing downturn since the Great Depression: The value of her home dropped by nearly $100 thousand over a year and a half period, she says. She had to refinance several times to pay the bills. She tried in vain to get help from her lender. She started falling behind on her monthly mortgage payments. She has lost this battle!

Of course there are many white Americans who are in the very same place as this woman–also in dire need of a helping hand from the government…from somebody!

But she represents more…she represents a tidal wave of economic destruction that is tearing about entire neighborhoods in this country. Places where people who may have started on a lower rung of the ladder bought into the American dream only to get ripped off by greedy lenders who cared less about reinforcing the matrix of a community than about selling the loan to some other agency, some foreign bank perhaps, in the form of a repackaged security.

When the woman in question tried to extract an ounce of empathy from her lender — a lender now, itself, under government scrutiny for its home loan practices, she was told it no longer owned her mortgage…months later, she still hasn’t been able to find out exactly who does!

And so, this week, she will put pen to paper and leave behind for good a place she once came home to every night to eat dinner with her husband; a place she once watched her now fully grown son mature; a place she once took pride in; a place she once thought she’d live in till the day she retires; a place that, within days, will no longer belong to her.

She will visit it from time to time now that she has moved into a nearby rental unit. She will pass by it in her car but not turn into its driveway. She will keep on going because the American dream has now passed her by. Some dreams just don’t happen twice.

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Tags: foreclosure, lender, loan, mortgage, sub-prime, subprime

The Associated Press is reporting today that Wachovia Bank, the nation’s fourth largest bank in terms of assets, will be shutting down it’s mortgage lending division.

“Wachovia Corp. lost $8.86 billion in the second quarter, and said Tuesday it was slashing its dividend and cutting 6,350 jobs after losses tied to mortgages soared.” In addition, “late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector.”

Any guesses on who is next?

Tags: bank failure, foreclosure, lender, loan, mortgage, wachovia, wachovia bank

Watch out. The home mortgage crisis may be about to belt you in the face and you may not even be aware the blow is coming.

A truly frightening article in the New York Times about the “shrinking lines of credit” and what it may mean for homeowners–and we are not talking about homeowners facing foreclosure,either.

What we are talking about are home equity lines of credit, often used to finance a whole range of things from vacations, to medical care, to new furnishings.

Simply put, such lines of credit are being abruptly taken away or greatly reduced, says the article.

Washington Mutual and others drop the ax

The troubled Washington Mutual, according to the article, has reduced or suspended “about $6 billion of available credit under existing home equity lines.” Other lenders are doing the same.

A main reason for having your credit line reduced or even suspended is a decrease in the value of your home.

“We will increase, decrease or suspend lines based on a number of factors, including a customer’s entire relationship with WaMu, their payment status and history, changes to their creditworthiness, and changes in the value of their property…We believe this is part of being a responsible lender,” says WaMu spokeswoman Sara Gaugl, as quoted by the Times.

A big problem is that most lending institutions apparently do not make public the guidlines they use to make their cutting decisions, so it may not be so easy to find out if you are about to have your own credit line severed.

The 20 percent solution?

According to the Times, as long as borrowers have in excess of 20 percent equity in their homes, they should qualify for credit. That benchmark sort of went away when real estate prices were skyrocketing, but now it is back in a big way!

And, there is one more thing to worry about—sorry.

According to the article, if you had, say, a $25,000 credit line, and you have already used $10,000 of it—-if the lender reduces your credit limit, credit reporting agencies are likely to lower your all important credit score making the argument that now you are over-stretched.

Heads you loose; tails you loose.

credit repair leads

Tags: Credit, default, heloc, lender, lines of credit, mortgage

There are two major player in the lending industry right now, Freddie Mac and Fannie Mae, both of these companies are very important because they more or less dictate the rules and guidelines for lender and banks across the USA.

Freddie Mac recently released a guideline change - “We are revising our requirements for Investment Property Mortgages to reduce the number of financed properties in which a Borrower who owns more than one financed Investment Property may have an individual or joint ownership interest (including the subject property) from 10 to 4. Also, effective for Mortgages with Freddie Mac Settlement dates on or after August 1, 2008, the borrower on a cash-out refinance mortgage must have owned the subject property for at least six months prior to the note date of the new refinanced mortgage.”

Investors that hold properties titled in an LLC’s, will have to wait 6 months after they quit claim into their personal name to refinance.

Who is Freddie Mac and why are they so important?

Freddie Mac is a stockholder-owned corporation established by Congress in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage backed securities and debt instruments in the capital markets or Wall Street. Historically, Freddie Mac has opened doors for one in six homebuyers and more than two million renters in America.

Investors need to start worrying when…

As of 6/3/03 the larger and more influential Fannie Mae has not changed their guidelines, but if they do change their guidelines, millions of investors would have to find new source of funding or be content with owning four or less properties.

Tags: fannie, Fannie & Freddie Mac Loans, freddie, lender, loans, mortgage, real estate

The importance of financing is so great it pays to leave nothing to chance and assumption. Knowing the local lenders and what they like to invest in is critical to finding the right lender for your investment project. Also, presenting a compelling case to the lender is important. These two aspects lay the foundation for creating a successful project.

This goes back to preparation and research. You might also want to research private financing, which entails knowing wealthy people, or knowing someone who knows wealthy people.

Having a good idea of what’s the favored investment in a local area will no doubt play a part in the choice of the investment project. But if you have followed advice and have become knowledgeable of your area, you should have a good idea about trends and the financing possibilities.

You have also, no doubt, become knowledgeable enough to exude confidence when you present a project to be financed. It also pays to have gathered support from influential people you know in the area who can vouch for you. Having references will allay doubt, unless you know the lender personally. It may be a process getting to the right decision maker, so you should be persistent and not give up at a first brush-off. Getting to know the assistant might be the first step, and it might take more than a few visits to get in the right door. Everything you learn from the first few failures will be important in devising a better plan.

Establishing rapport with those along the way will help clear the path — if what you present is compelling, you can advance, but the lower players will not likely stick their heads out if you seem unsure are don’t have a good presentation.

This is where having a good team already assembled helps . If you have chosen a well-known attorney and accountant, and have chosen property management (if it will be needed) and solid, quality contractors, then this shows that work has been done and others have looked at the project — it shows you are prepared and that you are a serious investor.

Having a good resume will be impressive, one that shows your skills and experience and why you would be good at this type of investment. Most lenders want to say Yes, but they want everything in place to be able to say Yes.

Make it as easy as possible for the lender by being co-operative and having others vouch for you — you might be good at selling yourself, but to a lender it will only be self-serving — a lender will be impressed if others who are influential and respected are selling you.

The bottom line is that the more you know about the right decision-making lender, the better you can plan a presentation that will be accepted favorably. Having all the numbers clearly crunched by an accountant, having all the legal ramifications covered by an attorney, all the construction aspects assessed bya contractor, all the management lined up and factored in, will present a strong case for acceptance — much stronger than if you go in alone and brag on yourself and idea and basically ask a lender to go on faith .

When an idea is reasonable, researched and the numbers make financial sense, AND you have a team behind you, the chances of getting financing are greatly enhanced — who knows, you may have lenders competing for the project, which would be even better.

Tags: Commercial Real Estate, financing, lender, presentation of the investment project, rea estate investment financing, real estate, Real Estate Investing

Minneapolis on the Decline: A Case Study

I have been following a fraud case that the city of Minneapolis has played a major role in. To be more exact, the Minneapolis City Council has been a driving force behind it. North Minneapolis has long been considered a high crime area and that part of Minneapolis is why the city has been nick-named “Murderapolis.” The foreclosure rate in the city has been setting new foreclosure records on a monthly basis and the abandoned houses that are left behind has caused a serious epidemic for the city to contend with.

Minneapolis is losing residents…Fast. The city has been very vocal with their efforts to get owner-occupied people to buy houses there to help solidify the city and rebuild the communities there. Most of the abandoned houses there have had the windows and doors boarded up to keep squatters from claiming a temporary place to stay. Even the city has acknowledged that the “squatters” are mostly “crack users” and with them comes the crime.

To summarize…Record highs in foreclosures has caused many homeowners to abandon their house. Cities have encountered increased crime with so many boarded up, abandoned properties. The Task: Do whatever is needed to entice people to buy and move into those abandoned properties.

The Cities want people to BUY the abandoned properties…BUY.

Cities such as Minneapolis are working against themselves, even though they claim to be working towards improving their cities as a great place to live.

That IS funny though and sure does make a press release sound good.

People Buying Houses Usually Need a Lender to FUND it.

Minneapolis, Baltimore, Cleveland and Buffalo are cities that have sued lenders that have foreclosed on houses in those cities. Those cities are claiming that the lenders are at fault for the abandoned houses and the increase in crime. Many of the houses the lenders own (REO – Real Estate Owned) are in rough shape and need to be fixed up. Historically, lenders sell their REO properties “as is” and have already lost a large amount of money and are not about to put more money into a house to fix it.

That makes sense. Properties like that are attractive to investors because they can represent a good deal.

It turns out, neighborhood associations in north Minneapolis approached REO departments of the lenders who own abandoned houses in that area. According to the reports, they “were unsuccessful” in buying those houses from the lenders. What does that mean? It means the city went to the lender and gave them a low-ball offer and the lender said, “No thanks.”

Cities can’t buy at a large discount so… Sue Them!

Those cities are losing the battle against crime and rather than increase their efforts to do something about it… They are opting to invest a massive amount of money into suing the lenders that own abandoned houses because, the lenders refused to sell to them.
That sounds pretty intimidating to a lender. They might see such a situation as “You can either sell us the house at a big discount or we will sue you because we feel the increased crime and run down houses are your fault.”

That sort of thinking is about as crazy as someone saying a mother is at fault for giving birth to her son, after her grown son did something wrong. After all, if that son had never been born, then he would not have done anything wrong.

I see two issues with those cities who are suing lenders.

1. It will (or should) deter would be home buyers looking to buy in those cities. If I was out shopping for a house and found out that the city has been suing lenders and claiming they are to blame for the crime & such… I would look elsewhere because if the city can sue a lender…What is to stop them from suing me and claiming that the reason houses are not selling on my block is because of the boat I have parked in my driveway?

2. What lender is going to want to give a loan to a buyer in an area where the city could sue them if they have to foreclose on that house?

I have never really seen a modern day “Ghost Town” but, if cities like Minneapolis, Baltimore, Cleveland and Buffalo don’t stop creating new “villains” to point the finger at, the problem will continue to get worse.

Here is a thought… Maybe those cities could try to accept responsibility for conditions they face and not blame every one else.

I hope the courts will rule in favor of the lenders with these lawsuits. If the courts side with the cities…parts of Minneapolis, Baltimore, Cleveland and Buffalo will become modern day Ghost Towns.

For a sneak peek, take a tour of north Minneapolis.

Tags: Buffalo, buying-foreclosures, city council, cleveland, foreclosure, Foreclosures, ghost town, lender, Minneapolis, mortgage

You’ve been hunting for that perfect rehab deal like a Neanderthal stalking a mighty Mastodon. You’re sure you’ve found it. The after repair value and renovation costs will allow for a hefty profit. You should even be able to set a price that will result in a quick sale when the rehab is complete. There is only one teensy-weenie thing left to do – find the money to make the purchase of the property.

Back in the ancient, olden times (early 2007) it was fairly easy. You would seek out a hard-money rehab lender. Sure, the terms were steep, but the financing cost was built into the equation. As long as the numbers penciled out you could get funded. It was even pretty common to include the cost of purchase and repairs and have the interest financed right into the deal. If you did it right you didn’t need much, if any, of your own money.

Things Ain’t What They Used To Be

Here we are a short time later and the easy money is gone. Rehab loans can still be had, but things sure are different. A novice rehabber has little hope of obtaining financing at all. The experienced rehabber is facing a lending environment that has changed dramatically. No money down? Forget it. All costs rolled in? Fat chance. All repair costs included? In your dreams. These days the lenders want you to have significant skin in the game.

It’s hard to blame the lenders. They have been burned so often in the recent past that they had to change the rules. While it is easy to say that they had no one to blame but themselves, you can’t fault them for adjusting to the realities of a changing market. The rehabber has to adjust as well, unless he is going to pack up his tent and go home until things change.

What’s a Rehabber To Do?

It’s more important than ever to seek creative ways to fund a deal. If you have equity in your own home, try using a Home Equity Line of Credit, or HELOC. Lately many banks have been reducing the credit limits on existing HELOCs, so be careful there. The advantage of HELOCs are that you are a cash buyer, you can use the money as needed for the deal and repairs, and when you pay it back it is there to use again.

Can’t use a HELOC? Look for owners who are willing to hold a short-term note while you complete the rehab. A friend of mine made an offer on a house with no money down, the owner holding a note for two years and payments deferred for six months while he completed the rehab. The seller accepted the terms without a fight. It can be done.

Learn about “subject to” deals where the existing financing remains in place. This allows you to buy a property without have to obtain financing. If the seller still has equity in the property, ask him to defer taking his share until you complete the rehab and sell the property. When people are in desperate need of selling a property, they will agree to all sorts of crazy terms. Try it, you’ll like it.

Creativity Is Key

The point is to look for alternative ways of making deals happen. Instead of thinking, “it can’t be done”, ask yourself, “how can I do it?” In a nutshell, think outside the box. These are challenging times. Those who rise to the challenge will succeed.

Tags: creative finacing, financing, hard money, heloc, home, lender, property, real estate, real estate investing, rehab, Rehabbing